Kansas City voters decide: Keep tax that’s big source of city funds or get rid of it?
Kansas City voters get yet another opportunity to either renew or eliminate the earnings tax — a 1% tax on earnings for anyone who lives or works in Kansas City, as well as on profits of companies that operate in the city.
The April 6 special election is the latest in a five-year cycle for the earnings tax, which has been in place since the 1960s.
If you live in Kansas City, you pay the earnings tax. If you live elsewhere but work in Kansas City, you pay the earnings tax. And if your company makes a profit in Kansas City, that business pays the earnings tax.
Supporters of its continuation say the earnings tax is the most important source of revenue for Kansas City’s budget. Kansas City is expected to receive nearly $268 million from the earnings tax during its upcoming fiscal year, which accounts for 40% of its general fund revenue.
The Kansas City Council just passed a $1.73 billion budget for its upcoming fiscal year. A common criticism about Kansas City’s revenue structure is that most of the money it has is spoken for — airport funds have to stay with the airport, water and sewer funds have to stay with the water department.
While $268 million sounds like a relatively small slice of Kansas City’s overall budget, the general fund, which has flexibility to pay for basic services, amounts to just $566 million.
“The general fund’s dollars go to support the police, fire, ambulance service, code inspectors and the general administration of the city,” said Katheryn Shields, a 4th District at-large council member who chairs the city’s finance, governance and public safety committee. “If the earnings tax were to fail how would you continue to support a general fund with over 40% of its dollars off?”
Critics of the earnings tax say it stifles growth for Kansas City and St. Louis, another city that has an earnings tax.
“We think it’s indisputable that, at some level, the earnings tax harms economic growth in Kansas City and St. Louis,” said David Stokes, director of municipal policy for the Missouri free-market think tank Show Me Institute.
Stokes cites, among other things, a 2006 study by University of Missouri economics professor Joseph Haslag that concluded that an earnings tax amounted to an incentive for companies to relocate away from cities that have the tax.
St. Louis-area businessman and political activist Rex Sinquefield, a board member for the Show Me Institute, proved influential in getting a statewide ballot initiative passed in 2010 that now causes Kansas City voters to have to renew the earnings tax every five years.
Voters so far have sided overwhelmingly with keeping the earnings tax in place. Around 80% of voters approved the measure the last two elections.
Marc Hill, president of the Civic Council of Greater Kansas City, said the business and civic community is “all in” on renewing the earnings tax.
“It funds an enormous amount of our public safety, roads, trash pickup,” Hill said. “These are the things businesses count on every day and there’s no viable source should that not be renewed.”
Kansas City businesses, civic groups and unions are writing big checks to support continuing the earnings tax.
Together KC is the political action committee supporting the earnings tax renewal. It has spent nearly $1 million so far on the campaign.
Major donors include the firefighters’ union ($125,000), Cerner ($25,000), Spire Missouri ($20,000) and the Kansas City Chiefs ($10,000).
Betsy Solberg, a Civic Council board member, said she believes the pro-earnings tax campaign is running an effective effort at engaging voters.
“I think this is a really well organized campaign,” Solberg said. “A lot of the previous campaigns, the Pat Gray campaigns and Steve Glorioso campaigns, have given the campaigns not a very clean feeling some times. And they’re gone. The people who are doing it now are doing a really good job.”
There appears to be no organized campaign against the earnings tax.
And while the coronavirus pandemic poses some obstacles to traditional campaigning, Kansas City Mayor Quinton Lucas said he thinks the city’s handling of the pandemic highlights why it’s important to retain the earnings tax.
Before the city received CARES Act money from Jackson and Clay counties, Lucas said, “we were spending health department funds to do COVID-19 testing, to do contact tracing, to build up our response. That’s what you can do with earnings tax funds. Of course it supports public safety, it supports so many of our core and fundamental operations in an unrestricted way.”
This story was originally published April 1, 2021 at 11:48 AM.
